Over 50% of P1.9T in SDA facility seen shifting to trust accounts — Monetary Board official

More than half of the money now in central bank special deposit accounts (SDA) might move to trust accounts and deposits from investment management agreements after Bangko Sentral ng Pilipinas set limits on accessing the facility, a Monetary Board official told reporters on Friday.

 

“Of the P1.9 trillion funds in the SDA, more than half is investment management agreements [IMA],” BSP Monetary Board member Felipe Medalla said on Friday.

 

On May 17, Bangko Sentral ordered IMA funds barred from the special deposits accounts starting Jan. 1, 2014 with the access to SDAs limited to trust accounts and unit investment trust funds (UITF). 

 

“With this move, banks will do honest-to-goodness banking and that is to pool funds… and now they will be doing their jobs…” Medalla said. “This thing requires smooth transition… There’s plenty of time to make adjustments,” he added.

 

Also Friday, Bangko Sentral Governor Amando Tetangco Jr. said the latest SDA limit was to keep the original intent of the facility as a monetary policy tool and not an investment instrument.

 

“So what’s going to happen is there will be some shift in funds from the investment management agreements to trust, like UITF products… 

 

Although there can be some amount that may go to deposits and those funds can be used by the banks to lend to their clients for their requirements, maybe for investments, or operating requirements,” Tetangco noted.

 

For an orderly transition, the central bank in its May 17 memo said all SDA placements inconsistent with Memorandum 2013-021 would be reduced by at least 30 percent on or before July 31, 2013, based on outstanding balances as of March 31, 2013, while any remaining balances of IMA funds in SDA accounts would be phased out starting Nov. 30, 2013. 

 

Tetangco did discount the possibility of some of the money in SDA accounts actually going to the asset markets. “It depends on the risk appetite of the investor, he said. “Certain investments would require a more aggressive investment strategy. If that is the case, that is possible,” the central bank chief added.

Weigh the risks

 

Investors must weigh the risks involved for a particular asset or market, and decisions must be based on  that assessment, Tetangco noted. “For those that are not as aggressive, they may stick to more traditional bank products,” he added.

 

However, foreign investors may not like the idea of having their money in trust accounts in banks that keep funds in the SDA, Medalla said. He noted: if that's the case then the investor could shift the money out of the country.

 

“When that money leaves the country... Well, good riddance and we’ll use that opportunity to shrink our balance sheet,” the Monetary Board official said.

 

Last week, Bangko Sentral reported a net loss of P95.38 billion in 2012, up 183 percent from P33.69 billion in 2012, mainly on efforts to stabilize the exchange rate but also other expenses that include interest payments on SDA funds.

 

It was the highest loss for the central bank since 1993, when the Bangko Sentral ng Pilipinas was established as an independent constitutional body under Republic Act 7653.

 

Medalla cited the significance of how much money will go abroad and how much will go to time deposits. “But I doubt more money will go to time deposits,” he added.

 

The Bangko Sentral must see the overall picture and assess the statistics before staging further tweaks on policy, especially on SDA yield. “I am not against... [an SDA rate cut] but the question is, do we have enough data to support the move? 

 

Let’s wait for more empirical guidance,” Medalla said.

 

On April 25, the Monetary Board cut the yield rates on SDA accounts at 2 percent across all tenors— the rate cut for the facility so far this year. — VS, GMA News